Tuesday, November 11, 2008

As you all
will know by now, usually the ratings a agencies
can be relied on as the butt of derision. They are hopelessly
compromised by their desire to retain 'access' to the companies they
rate - in this they share a mind with the White House Press
Corps.

I have always believed that you can rate any security based
solely on the financial reports of the company that underlies them,
plus an understanding of the broad economy. Anything else - going
fishing with the CEO, being taken out to lunch by the BDMs - is
embroidery. If the reports are so complex that a competent analyst
requires guidance from some dill in Management at the company, then
something is being hidden, and that should be an immediate red flag.

The other big problem - already identified in these pages
years ago - is that the ratings agencies get paid by those
they rate. This is a very big problem when the fees to get rated are
counted in the millions of dollars. You can get away with it at lower
price points: at InvestorWeb, the Managed Funds team
was paid by the fund manager, for example. While that
introduced some issues (e.g., when I slapped a SELL on BT's Imputation
Fund), the fees were never enough to give the manager the sense that he
was paying for a specific rating (i.e., nothing lower than a 'Buy').

Anyhow... ratings agencies are hopeless as a guide - unless
you want a list of companies on which the market has already passed
judgment.

Which brings me to the issue of US sovereign debt.

I and others like me (Marc Faber, JIm Grant, Fleckenstein and others)
have said that US government debt does not deserve to be
rated AAA. Ratings agencies disagree, despite the massive budgetary
black hole into which the US government has pushed its citizens.
Somehow the idea that government can raise taxes at will, leads
S&P, Moody's and Fitch to all think that nothing could possibly
go wrong.

Well, lately the 'madman in the wilderness' hypothesis - US
government default - has actually been canvassed in interviews... on
CNBC of all places.

Economic News

None.

Fed Open Market Operations

The Fed's Open Market Operations desk did not perform any
repurchases today.

Headline Indices

Someone is 'saving' this market every time it threatens a
genuine washout. Today someone from the Black Helicopter crowd forced
some dill from Blackstone to announce - on a holiday, with the bond
market closed and with volume preternaturally light - that the
old Bear
Stearns mortgage book was 'probably worth more
than its market value'... for cryin' out loud.

Just as that news was being promulgated, a strange thing
happened in the S&P futures: the advent of a buyer
swinging a large axe without any care in the world as to price paid...
buying at market, in volume.

The S&P shot up 30 points in an hour, and the Dow got
all the way back to UNCH.

When that wore off, it looked like the session low would be
retested... then the Mystery Buyer reappeared and the market shot up 15
points... and then gave back the bulk of that surge, too. Finally, in
the closing minutes there was an attempt to close the market above 900
(basis the S&P cash); FAIL.

The Dow Jones Industrial Average lost
176.58 points (1.99%) to 8693.96 points. The index high for the day was
8867.51, while the low was 8561.66.

The Dow Jones Industrial Average index
(DJI) contains 30 components; the total volume traded in the index was
1083.46m units. Within the index, just 1 stock (Pfizer) rose, on volume
of 37.39m units; 29 Dow components fell, with aggregate volume of
1.05bn units.

The main decliners (in percentage terms) were -

General Motors (GM) -0.44 (13.1%) to $2.92 on volume of
75.03m shares;

Alcoa (AA) -0.84 (7.1%) to $10.94 on volume of 20.74m
shares;

American Express (AXP) -1.58 (6.6%) to $22.4 on volume of
19.81m shares;

Boeing (BA) -2.17 (4.7%) to $43.97 on volume of 7.91m
shares; and

Du Pont (DD) -1.34 (4.5%) to $28.76 on volume of 8.11m
shares.

The S&P500 Index lost 20.26
points (2.2%) to 898.95 points.Total volume traded in the index was
3.79bn units. Within the index, 65 issues rose, with aggregate volume
of 494.66m units; 423 issues fell, with aggregate volume of 3293.38m
units.

A total of 3621 issues traded today on the NYSE; today's total
volume was 761m shares. A total of 672 stocks posted gains for the day,
and volume in advancing issues totalled 710m shares. Exerting
downwards pressure on the index were 2885 losers, which accounted for a
total declining volume of 40m shares. 9 stocks made new 1-year highs on
the NYSE, while 348 shares plumbed new 52-week depths. {Note - I reckon
those volume numbers are wrong}.

On the Nasdaq 2945 tickers traded today; total Nasdaq volume
was 1.91bn shares. A total of 723 stocks posted gains for the day, with
aggregate volume of 230m shares changing hands in the day's
winners. The red zone of the Nasdaq exchange comprised 2116 losers, and
total declining volume was 1.66bn shares. 6 Nasdaq-listed stocks hit
new 52-week highs, while 352 shares dipped to new 1-year lows.

Major Market Statistics

Index

Close

Gain(Loss)

%

Dow Jones Industrial Average

8693.96

-176.58

-1.99%

S&P500 Index

898.95

-20.26

-2.2%

Nasdaq Composite

1580.90

-35.84

-2.22%

Nasdaq100

1225.59

-25.41

-2.03%

CBOE Volatility Index

61.44

+1.46

2.43%

CBOE Nasdaq100 Volatility Index

60.83

+2.39

4.09%

Dow Darlings

Pfizer (PFE) +0.17 (1%) to $16.77 on
volume of 37.4m units

Dow Duds:

General Motors (GM) -0.44 (13.1%) to
$2.92 on volume of 75m units

Alcoa (AA) -0.84 (7.1%) to $10.94 on
volume of 20.8m units

American Express (AXP) -1.58 (6.6%) to
$22.4 on volume of 19.8m units

Boeing (BA) -2.17 (4.7%) to $43.97 on
volume of 7.9m units

Du Pont (DD) -1.34 (4.5%) to $28.76 on
volume of 8.1m units

Most Traded Dow stocks:

Citigroup (C) --0.41 (3.7%) to $10.8 on
volume of 139.4m units

General Electric (GE) --0.64 (3.5%) to
$17.81 on volume of 103.8m units

Bank Of America (BAC) --0.79 (4.1%) to
$18.69 on volume of 103.1m units

Microsoft (MSFT) --0.1 (0.5%) to $21.2
on volume of 77.8m units

General Motors (GM) --0.44 (13.1%) to
$2.92 on volume of 75m units

Precious Metals

Precious metals futures were soft...

Precious Metals Futures

Index

Close

Gain(Loss)

%

Gold

731.2

-15.3

-2.05

Silver

9.78

-0.44

-4.31

Palladium

215.5

-6.5

-2.93

Platinum

826.1

-33.8

-3.93

The Gold Bugs index (XAU) contains 16
components; the total volume traded in the index was 88.78m units.
Within the index, 2 issues rose, with aggregate volume of 4.7m units;
14 issues fell, with aggregate volume of 84.08m units.

Today the index fell by 5.46 points (6.13%) to 83.62 points.
The main decliners (in percentage terms) were -